scholarly journals Real Options Valuation: An Application to the Portuguese Real Estate Market

2008 ◽  
Author(s):  
Carla Oliveira ◽  
Gualter Couto ◽  
Pedro Miguel Pimentel
Keyword(s):  
Real Estate ◽  
Real Options ◽  
Real Estate Market ◽  
Real Options Valuation ◽  
Options Valuation

scholarly journals Managing Bubbles in the Korean Real Estate Market: A Real Options Framework

2018 ◽  
Vol 10 (8) ◽  
pp. 2875 ◽  
Author(s):  
Kyungwon Kim ◽  
Jae Song
Keyword(s):  
Real Estate ◽  
Real Options ◽  
House Price ◽  
Investment Strategy ◽  
Real Estate Market ◽  
Market Mechanism ◽  
The Real Estate ◽  
Early Exercise ◽  
Related Information ◽  
Real Options Valuation

The aim of this paper is to propose a real options framework to measure and manage bubbles in the Korean real estate market. The proposed framework carefully defines and utilizes the unique leasing mechanism in Korea, called the Jeonse system, a tentative contract for one or two years with a large amount of deposit, to represent the value of residence. Furthermore, the proposed framework applies the volatility with heteroscedasticity to improve the numerical accuracy in comparison to the traditional real options valuation model. The results of the model ultimately suggest the investment strategy that takes into account the measured bubbles in the market. Specifically, given that the Korean real estate market could be regarded as an American option, the investment strategy with early exercise completely eliminates the existing arbitrage opportunities in both long and short positions. In this context, the investment decisions based on the results of the proposed framework are expected to encourage the reflection of bubble-related information in the market, which eventually reduces the formation of bubbles via market mechanism for arbitrage elimination. In conclusion, the bubble-related information obtained from the model is expected to contribute to the stability of the real estate market by reducing the volatility of house price and quick price adjustment to new information.

Valuing flexibility in a retrofit investment

2014 ◽  
Vol 16 (1) ◽  
pp. 3-21 ◽  
Author(s):  
Jussi Vimpari ◽  
Juho-Kusti Kajander ◽  
Seppo Junnila
Keyword(s):  
Real Estate ◽  
Real Options ◽  
Research Process ◽  
Real Options Analysis ◽  
Content Type ◽  
The Real ◽  
Real Options Valuation ◽  
Corporate Real Estate ◽  
Options Valuation

Purpose – The need for flexibility between organisational units is well established in corporate real estate. While the cost of flexibility is rather straightforward to approximate, measuring economical value of the flexibility is not straightforward. The purpose of this paper is to explore how real options analysis can be used for valuing flexibility in a real retrofit investment case, present a research process for valuing the flexibility in the retrofit investment case, and evaluate the empirical usability of real options valuation results compared with traditional discounted cash flow valuation results. Design/methodology/approach – The research is conducted as a case study. A newly introduced real options valuation method, the fuzzy pay-off method is used for analysing data from a Finnish office building retrofit investment case. The major difference in the selected method is that it uses fuzzy set theory instead of probabilistic theory, and the main advantage is the practical applicability, i.e. only three scenarios (minimum, best guess, and maximum) are needed for the valuation of flexibility. In the case, the scenarios are determined using a seven-phase research process that incorporates data available (e.g. rental agreements, building information) to a corporate real estate unit. The research process involves defining vacancy scenarios for rental agreements, transforming them into potential income achievable with flexibility, estimating cost of flexibility, comparing the potential income with the costs, and valuing the real options. Findings – The main finding of this paper is that real options analysis; especially the fuzzy pay-off method can be used for assessing the monetary value of flexibility. The applicability of the fuzzy pay-off method into a practical investment case was found straightforward because assignment of probabilities into different uncertainty scenarios was unnecessary. In the empirical case, it was found that flexibility investments were profitable only when parts of the building instead of the whole building were designed flexible. The present value of the pay-off from flexibility ranged from negative 58/sqm to positive 130/sqm, depending on the tenant. Originality/value – Real options literature, especially in the real estate and construction sector, has requested for new applications of real options analysis in practical setting. This paper adds to that request with an example of evaluating flexibility in a retrofit investment case. The empirical analysis produced in this paper was perceived valuable by case study investor and can be used as a guidance and motivation for further applications of real options in the industry.

scholarly journals Real Options Valuation Under Uncertainty

2015 ◽  
Author(s):  
Marie Lambert ◽  
Manuel Moreno ◽  
Federico Platania
Keyword(s):  
Real Options ◽  
Real Options Valuation ◽  
Options Valuation
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